Growth momentum in all major sectors - Central Bank

The Monetary Board has decided to conduct open market operations aggressively to mop up excess liquidity from the market while maintaining the policy interest rates of the Central Bank at their current levels after having reviewed the recent economic developments and projections.

The growth momentum in all major sectors in the economy is continuing as expected at the beginning of the year.

The Agriculture sector is expected to recover with the continuation of favourable weather conditions. Following the all-time high level in paddy production recorded in 2004/05 Maha season, paddy harvest in Yala 2005 is also expected to reach a high level. Tea and rubber production has recorded a strong growth in the first half of the year while coconut production has indicated a gradual recovery.

The output of the industrial sector has grown by 5.9 per cent during the first half of 2005 and this growth has been broad-based and balanced across export and domestic market-oriented industries.

The growth in the services sector is continuing with major sub sectors such as telecommunications, tourism, port services and transport showing improved performance.

Tourist arrivals increased by 12.3 per cent from 50,525 tourists in July 2004 to 56,745 tourists in July 2005.

The expansion of external trade continued during the first half of the year. Export earnings increased by 11.5 per cent during the first half of the year, reflecting a continuous improvement in all three major export categories.

Expenditure on imports increased by 10.3 per cent during this period. Private remittances have increased by 21 per cent during the first half of the year.

Due to the higher private remittances, official inflows to the government and the benefit of debt relief, official international reserves have increased, giving stability to the domestic foreign exchange market.

Gross official reserves increased to around US dollars 2,378 million as at end June 2005 from US dollars 2,196 million by end December 2004. Reflecting these developments, the rupee has appreciated against the US dollar by 3.6 per cent so far during the year.

Inflation that continued to be moderate during February-June 2005 due to the improvements in supply conditions as well as the monetary policy actions taken so far, has increased again in July 2005.

The point-to-point change in the Colombo Consumers' Price Index (CCPI) increased from 9.4 per cent in June 2005 to 10.8 per cent in July 2005, while the Sri Lanka Consumers' Price Index (SLCPI), which is available with a lag of one month, recorded a decline from 13.2 per cent in May 2005 to 11.7 per cent in June 2005, on a point-to-point basis.

Recent tax revisions by the Government would help contain further inflationary tendencies, even though soaring international petroleum prices continue to threaten price stability.

The level of reserve money, which is the principal operating target of monetary policy, remains close to the expected path. The growth in broad money continues at around 20 per cent mainly due to the increase in credit to both the public sector and the private sector.

The growth in money supply is expected to moderate with the monetary policy measures taken so far being gradually transmitted to the financial system. Following the policy rate increases in May and June 2005, short-term money market rates have adjusted upwards and commercial banks have responded positively raising both lending rates and deposit rates.

Considering these developments, the Monetary Board has decided to conduct open market operations aggressively to mop up excess liquidity from the market while maintaining the policy interest rates of the Central Bank at their current levels, the bank said yesterday.